TaxTMI 
TaxTMI 
2022 (11) TMI 1340
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....rence under section 92CA was made. The Deputy Commissioner of Income Tax (Transfer Pricing)-2(2)(1), Bangalore ('TPO') after taking into consideration the submissions of the Company, concluded the proceedings under section 92CA(3) and passed the transfer pricing order on 30.1.2015 by making the following adjustments:- a) Interest on loan provided to Sasken Inc. amounting to Rs. 1,35,24,952. b) Corporate Guarantee provided to subsidiary amounting to Rs. 97,11,364. 2. The AO passed the draft assessment order was making the following adjustments to total income in addition to the TP adjustment. a) Excess Deduction u/s 10A/10AA: Rs.29,59,03,223/- b) Disallowance u/s 14A: Rs.1,04,91,588/- 3. Aggrieved by the draft assessment order the assessee filed the objections with the Hon'ble DRP. The DRP after considering the submissions of the rejected the contentions of the assessee and affirmed the orders of the AO and TPO. However, in respect of the ground raised by the assessee with respect to exclusion of foreign currency expenses from export turnover under section 10A, the DRP directed the AO to follow the order of the Hon'ble ITAT is the Company's own case for AY 2004-05, 2006-07....
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.....2019 and the subsequent ITAT order dated 14.1.2020 by which it was remanded back to the AO with a direction to exclude investments which do not yield exempt income in light of the decision of the Special Bench of the Delhi Tribunal in ACIT vs. Vireet Investments (P) Ltd (2017) 82 Taxmann.com 415(SB). d) Reduction of Royalty from 10A/AA profits: This issue was a subject matter of ITAT MP order 28.6.2019 and the subsequent ITAT order dated 14.1.2020 by which it was remanded back to the AO with a direction to verify the claim of the Company for the year under consideration in light of the ratio laid down by Hon'ble Karnataka High Court in case of CIT vs. Wipro Ltd in ITA Nos. 503 and 507 of 2002. e) Reduction of expenses incurred in foreign currency from export turnover: This issue was a subject matter of ITAT MP order 28.6.2019 and the subsequent ITAT order dated 14.1.2020. The ITAT noted that the DRP while considering the issue held that Tribunal in the Company's own case in AY 2004-05, 2006-07 and AY 2008-09 held that the foreign currency expenditure incurred towards travelling and salary of employees involved in the project outside India are not to be excluded for computing d....
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....(13) of the Act arriving at an assessed income of Rs.51,30,15,092/- in line with directions of the DRP in which the following additions were made:- a) Excess Deduction u/s 10A/10AA: Rs.22,25,27,655/- b) Disallowance u/s 14A: Rs.62,12,501/- c) Transfer Pricing Adjustment: Rs.97,11,364/- d) Disallowance of Foreign Tax Credit: Rs. 3,72,69,000 8. Aggrieved by the above final order of assessment in the second round of assessment proceedings, the assessee is in appeal before the Tribunal. The assessee raised grounds pertaining to the following issues a) Ground No. 1 (Ground 1.1) - General ground b) Ground No.2 (Ground 2.1 to 2.2) - Validity of draft assessment order c) Ground No.3 (Ground 3.1 to 3.3) - TP adjustment on Corporate Guarantee d) Ground No.4 (Ground 4.1 to 4.5) - Exclusion of royalty income from profits eligible for deduction u/s.10A and 10AA) e) Ground no.5 (Ground 5.1 to 5.4) - Reduction of expenses incurred in foreign currency from export turnover while computing deduction u/s.10A and 10AA f) Ground no.6 (Ground 6.1 to 6.3) - Foreign Tax Credit g) Ground No.7 - Levy of interest u/s.234B h) Ground No. 8 - Prayer with regard to various additions / di....
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....ly in respect of loan outstanding payable to Nordea Bank as on 31st March 2011, as the risk of default, if any, will be limited to the amount actually payable by the overseas subsidiary to Nordea Bank. The ld AR drew our attention to the fact that for the assessment year 2012-13, in Assessee's own case the TPO vide order u/s 92CA rws 154 dated 22.2.2016 [Page 591, 592 of the paper book] had made the adjustment at 0.92% on the outstanding balance of the loan amount. The ld AR therefore prayed that the revenue cannot take a different stand for the year under consideration. 15. The ld DR supported the orders of the lower authorities and argued that 0.92% as directed by the DRP is a very reasonable rate. The ld DR further submitted that the rate of interest should be levied on the average of opening and closing balance of the corporate guarantee and not only on the closing balance. 16. We heard the rival submissions and perused the material on record. We notice that this issue is covered by the orders of the Tribunal in Medrich Ltd. v. Asstt. CIT [ITA No. 1574 (Bang.) of 2019, dated 12-4-2021], in the case of Manipal Global Education Services (P.) Ltd. v. Dy. CIT [2018] 95 taxmann.co....
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....ng on the said decision, the AO held that ownership of software for which royalty had been received, vested with the corporate entity and not with the specific SEZ/STPI undertaking. For this reason, the royalty income was reduced from profits while computing deduction under section 10A/10AA. 19. The DRP concurred with the views of the AO by stating that the decision of the Karnataka High Court in Wipro Ltd (supra) is distinguishable on facts as it pertains to interpretation of profits of business under section 80HHC and not under sections 10A/10AA 20. The ld AR made a detailed submission as extracted below - (a) Under section 10A(1)/10AA(1), profits and gains derived from the export of, inter alia, computer software is eligible for deduction under section 10A. Subsection (1) of section 10A/10AA begins with the expression 'subject to the provisions of this section'. The said expression means that the deduction eligible under subsection (1) should be computed having regard to and in conformity with the provisions of other subsections of section 10A/10AA. (b) Subsection (4) to section 10A and subsection 7 of section 10AA provides the mechanism for computation of deduction provid....
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....ection 10A/10AA should be allowed as claimed in the return of income 21. The ld AR also brought to our attention that though the decision of the Hon'ble High Court in the case of Wipro (supra) was held in the context of section 80HHC, there are subsequent decisions rendered in the context of 10A in the case of CIT v WIPRO Ltd ITA No 507 of 2002 (decision dated 1.9.2010) where it is held that special import license premium income and other miscellaneous income should be considered as income derived from the industrial undertaking eligible for exemption under section 10A of the Act. The ld AR also submitted that following these two decisions, the Karnataka High Court in CIT v Wipro Ltd ITA No. 3204 of 2005 decision dated 28.2.2012, at page 5 to 7 of its decision, [Page 806 to 808 of case laws filed on 31.10.2022] held that income from sale of scrap newspaper, income received by the assessee from write back of credit balance in customers accounts, reversal of sundry creditors / stale cheques, employee credit balances reversed should be treated as profits and gains from exports and deduction under section 10A should be allowed on the same. It was also held that royalty income should f....
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....ecision in the very same assessee's case referred to supra, referring to the following judgments:- 1) Commissioner of Income-tax US. Meghalaya Steels Ltd., [(2016) 67 taxmann.com 158 (SC)]; 2) Commissioner of Income-tax us. Sasken Communication Technologies Ltd., [(2014) SO taxmann.com 134 (Karnataka)];" 3) Commissioner of Income-tax vs. Yokogawa India Ltd., [(2017) 77 taxmann.com 41 (SC)]; 4) Commissioner of Income-tax, Central Circle vs. Motorola India Electronics (P.) Ltd., [(2014) 46 taxmann.com 167 (Karnataka)]; 5) Commissioner of Income-tax - VII, New Delhi vs. Punjab Stainless Steel Industries [(2014) 46 taxmann.com 68 (SC)]; 6) Commissioner of Income-tax vs. Hewlett Packard Global Soft Ltd., [(2017) 87 taxmann.com 182 (Karnataka) (FB)]; 7) Commissioner of Income tax, Central - III vs. HCL Technologies Ltd., [(2018) 93 taxmann.com 33 (SC)]; 8) M/ s. Tata Elxsi Limited vs. The Assistant Commissioner of Income Tax, Bangalore (ILR 2015 KAR 1739). 4. It is not in dispute that the judgment of this Court in ITA No.264/2017 dated 05.11.2018 has been carried by the revenue in appeal before the Hon'ble Apex Court in SLP No.21055/ 2019 which is pending consid....
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....duced by an amount of Rs. 2,20,66,228/- already reduced by the assessee from the export turnover of the 10AA unit in the return of income in view of the definition of 'export turnover' as contained in clause (i) of explanation 1 to section 10AA. 25. The ld AR submitted that the ITAT in Assessee's own case for the AY 2004-05, 2006-07 and 2008-09 vide order dated 04.03.2015 held that expenses incurred in foreign currency should not be reduced from export turnover while computing deduction under section 10A for the reason that the Appellant is engaged in development and export of computer software and not into technical services. However while passing the OGE orders for these years, the AO did not reduce the expenses incurred in foreign currency from the export turnover. The ld AR further submitted that similar view is held by the, the ITAT in Assessee's own case for the 2010-11 where the Tribunal directed the AO to follow the decisions of Karnataka High Court in Motor Industries Co Ltd, Mphasis Ltd, Kshema Technologies Ltd and other cases. The ld AR drew our attention to the fact that the CIT(A) followed the above decision in disposing the appeal for AY 2009-10 and revenue's appeal ....
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....able to rendering of services in connection with development of computer software. However, section 10AA specifically warrants exclusion of expenses incurred in foreign currency attributable to rendering of services in connection with computer software. Similar prescription is absent in section 10A. The exclusion from 'Export turnover' under section 10A is of expenses incurred in foreign currency in providing technical services outside India. "Technical services" would mean making available specialized knowledge or information to a third person. The recipient of such knowledge or information is then enabled to apply and use such knowledge and information for the purpose of carrying out any work. Technical services would therefore mean and refer to the usage or deployment of specialized skills in rendering any services of a consultancy nature. 29. So the next question to be considered is whether the services rendered by the assessee in terms of software development is to be regarded as technical services. We notice that the Hon'ble Karnataka High Court in the case of CIT v Mphasis Ltd [2016] 74 taxmann.com 274 has considered a similar issue and held as under"- "Whether the Tribun....
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.... section 80HHE of the Act. Such a turnover falls within sub-clause (i) of sub-section (1) of section 80HHE of the Act, that is export out of India of computer software or its transmission from India to a place outside India by any means. The expenditure incurred in the form of foreign exchange for such services cannot be excluded in computing the export turnover as it forms part of the export turnover. In the instant case as is clear from the order of the Assessing Authority, he proceeds on the assumption that the assessee is a company engaged in rendering technical services outside India in connection with production of said software. Therefore the expenditure incurred in foreign exchange in providing such technical services outside India of Rs. 62.7 lakhs was excluded in computing the export turnover and total turnover for arriving at deduction under section 80HHE of the Act. The assessee is engaged in the business of export out of India of computer software and its transmission to places from India outside India. Before a computer software is exported, the Software Engineers of the assessee would have initial discussion with regard to the requirements, specifications etc. Therea....
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....ted. It is further noticed that the AO has made the similar reduction from the total turnover also while computing the deduction u/s.10A and 10AA (Refer para 4.3.2 page 13 of AO's final order). We therefore direct the AO to delete the deduction of Rs.7329.94 lakhs made in the export turnover and total turnover. It is ordered accordingly. Grounds No. 6.1 to 6.3 - Ground with respect to addition of withholding taxes and income tax amounting to Rs. 3,27,69,000 33. In the computation of total income for the year under consideration, the assessee added back of withholding tax and income tax of Rs. 3,72,68,820 to net profit after tax as per profit and loss account in order to arrive at net profit before tax as per profit and loss account. However the AO proposed an addition of Rs. 3,27,69,000 stating that the computation of income should begin with the figure constituting profit before tax whereas the Assessee has started with the amount of profit after tax. The assessee vide letter dated 12.5.2022 made submission before the DRP that the amount added by the AO is already disallowed by the assessee in the computation of income and that the same amounts to double disallowance. The DRP d....